Mar 16, Colombo: A senior economist in Sri Lanka has said the country has not yet reached the position of a high performing economy following the end of the war.
Professor of Economics at the Colombo University Sirimal Abeyratna has told a weekly English newspaper that Sri Lanka therefore cannot sustain 8-10 percent rate of average growth unless it expands its capacity level, and not the capacity utilization level.
Referring to an International Monetary Fund (IMF) Working Paper titled "Estimating Sri Lanka's Potential Output" which said that "Sri Lanka's potential output growth appears to be around 6¾ (6.7) per cent per year", Professor Abeyratna has said the study based on a quantitative analysis has confirmed the actual post-war growth outcome of Sri Lanka.
In the IMF study the authors presented various techniques to estimate Sri Lanka's potential output and output gap, including statistical and model-based approaches.
The model-based approaches allowed potential output estimates to incorporate information contained in observable data series including inflation, actual output, unemployment, and capacity utilization.
The estimation results suggested that Sri Lanka's potential output (GDP growth) has risen slightly in the last few years.
Dr. Abeyratna explained that the basic finding of the IMF paper is that Sri Lanka's potential output, which has slightly increased after 2009, remains at 6.7 percent per year.
Sri Lanka's actual GDP growth would remain fluctuating around this figure, as it has been so during the past decade he said adding that during 2002-2012, it has grown only at 6.4 percent per year.
The IMF study concluded that Sri Lanka's economy was operating slightly above potential in 2012 and if macroeconomic stability is to be maintained, policies should be geared toward allowing a period of below-potential economic growth over the near term to reduce excess demand.